Court of Appeals February Session: Arguments of Interest for February 8, 2018

The Court of Appeals’ February session continues on Thursday, February 8, 2018 with three cases on the argument docket (the Court’s case summaries can be found here).

The Court will hear arguments on the following issues: (1) whether in misappropriation of trade secrets cases, damages can be measured by the misappropriator’s costs avoided, and whether prejudgment interest may be awarded on those damages; (2) when during trial must a criminal defendant invoke the right to proceed pro se; and (3) whether a criminal defendant was improperly denied the right to proceed to trial pro se, but with stand by counsel, and whether the trial court improperly denied the defendant’s attempt to introduce psychiatric evidence to challenge the voluntariness of his Miranda waiver.

No. 26     E.J. Brooks Company, d/b/a TydenBrooks v Cambridge Security Seals

Manufacturing plastic security seals is apparently big business.  You know, those seals that are nearly impossible to get off a bottle without a knife but give you a measure of comfort that nobody tampered with your goods before you opened them.  Well, when your company makes those plastic security seals, and three employees steal your trade secrets to take to a competitor, you sue them for misappropriating your hard work and ingenuity.

That is exactly what happened in E.J. Brooks Co. v Cambridge Sec. Seals, and the plaintiff won at trial.  So, the federal district court ordered the defendants to pay back in damages the costs that they avoided by stealing the trade secrets instead of developing the plastic security seals on their own.  The Court, however, denied the plaintiff’s request for prejudgment interest under CPLR 5001, holding in essence that inclusion of prejudgment interest would be duplicative here because the jury awarded damages from the date of the misappropriation to the date of the verdict.

On appeal, the Second Circuit held that finding liability was easy, but the question of the proper amount of damages for the misappropriation was less so.  The Court explained that New York decisions appear to have authorized a number of different measures of damages in misappropriation of trade secrets cases, but never explicitly the costs avoided measure used by the disctrict court below. So, the Second Circuit decided to certify the question to the Court of Appeals to decide.

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The Second Circuit also certified whether the typically mandatory award of prejudgment interest under CPLR 5001 still applies where the plaintiff has already been awarded damages for the entire prejudgment period and an additional award of prejudgment interest would be a windfall.

The Court of Appeals will now have to decide these two certified questions:

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The Second Circuit’s opinion can be found here.

Court of Appeals Answers Second Circuit Certified Questions in World Trade Center Cleanup Suit Against Battery Park City Authority

After the 9/11 terrorist attack, first responders and volunteers spent weeks/months/years cleaning up the City from the debris and dust left after the World Trade Center towers fell. A few of the buildings that were cleaned up were owned by the Battery Park  City Authority, a public benefit corporation created by the Legislature to spur economic redevelopment in Battery Park. When the workers doing the cleanup began to fall ill because of the cleanup of toxic dust, they brought personal injury claims against the BPCA in federal court for negligence and violations of NY Labor Law §§ 200 and 241(6) for failing to provide a safe workplace.

The plaintiffs’ claims were dismissed on July 29, 2009, however, for failure to timely serve a notice of claim pursuant to the Public Authorities Law. Afterwards, the New York Legislature enacted “Jimmy Nolan’s Law,” which revived the time-barred claims against the BPCA and provided the plaintiffs with an additional year to serve the notices of claim. The eight plaintiffs then took advantage of the new law and sued BPCA again. BPCA moved for summary judgment dismissing the claims and challenging the constitutionality of Jimmy Nolan’s Law on due process grounds. The State intervened in defense of the statute and argued that BPCA, as a public benefit corporation, lacks capacity to challenge the constitutionality of the state statute.

As I previewed in more depth here, New York generally follows the traditional rule that municipalities and other arms of the State lack capacity to challenge the acts of the State as their creator, including state legislation. BPCA argued, however, that as a public benefit corporation it is different. Under the Court of Appeals’ decision in Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. (70 NY2d 382, 387 [1987]), BPCA argued, “a particularized inquiry is necessary to determine whether—for the specific purpose at issue—the public benefit corporation should be treated like the State.”

The District Court (SDNY) held that the BPCA is an entity independent of the State because it “was created to be independent of the State in performing primarily private functions, funded primarily by private means,” through issuance of bonds (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 66 F Supp 3d 466, 472 [SDNY 2014]). Thus, the District Court concluded that BPCA had capacity to challenge the statute on due process grounds, and held that Jimmy Nolan’s Law violated the BPCA’s due process rights under the New York Constitution (see id. at 476).

On appeal, the Second Circuit did not find New York law on whether a public benefit corporation has capacity to challenge a state statute on constitutional grounds to be so clear. Instead, the Second Circuit held, it is “unclear whether New York courts have applied the [Clark-Fitzpatrick] particularized-inquiry test in the present context—that is, to determine whether a public benefit corporation should be treated like the State for the purpose of having the capacity to raise a constitutional challenge to a State statute” (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 846 F3d 58, 64 [2d Cir 2017]).

So, the Second Circuit certified two questions to the Court of Appeals:

(1) Before New York State’s capacity-to-sue doctrine may be applied to determine whether a State-created public benefit corporation has the capacity to challenge a State statute, must it first be determined whether the public benefit corporation “should be treated like the State,” see Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., [70 N.Y.2d 382, 521 N.Y.S.2d 653] 516 N.E.2d 190, 192 ([ ]1987), based on a “particularized inquiry into the nature of the instrumentality and the statute claimed to be applicable to it,” see John Grace & Co. v. State Univ. Constr. Fund, [44 N.Y.2d 84, 404 N.Y.S.2d 316] 375 N.E.2d 377, 379 ([ ]1978), and if so, what considerations are relevant to that inquiry?; and

(2) Does the “serious injustice” standard articulated in Gallewski v. H. Hentz & Co., [301 N.Y. 164] 93 N.E.2d 620 ([ ]1950), or the less stringent “reasonableness” standard articulated in Robinson v. Robins Dry Dock & Repair Co., [238 N.Y. 271] 144 N.E. 579 ([ ]1924), govern the merits of a due process challenge under the New York State Constitution to a claim-revival statute?

Answering those two certified questions in Matter of World Trade Center Lower Manhattan Disaster Site Litigation (Faltynowicz et al v Battery Park City Authority and two others) (No. 119), the Court of Appeals held that public benefit corporations are no different than any other arm of the State for purposes of capacity to challenge a state statute. Thus, they must fall within one of recognized exceptions to the general incapacity rule before they can bring such a claim, and “no ‘particularized inquiry’ is necessary to determine whether public benefit corporations should be treated like the State for purposes of capacity” (Opn, at 5).

Public benefit corporations, which are vehicles for funding public projects, the Court held, have two purposes: (1) to “protect the State from liability” and (2) to “enable public projects to be carried on free from restrictions otherwise applicable” if the State was the project sponsor. In that way, public benefit corporations have an existence separate from the State. That separate existence for those limited purposes, however, does not mean that public benefit corporations, as agents of the State, fall outside of New York’s general rule that subdivisions of the State lack capacity to challenge the acts of their creator on constitutional grounds. Indeed, the “particularized inquiry” test applied in Clark-Fitzpatrick applies only to public benefit corporations’ relationships with private parties, not to its relationship with the State. Thus, the Court held, “with few exceptions, [New York’s] capacity bar closes the courthouse doors to internal political disputes between the State and its subdivisions,” such as those in this case (Opn, at 9).

Reviewing the second certified question, the Court concluded that the “serious injustice” standard and the “reasonableness” standard aren’t really that different, although the different terminology has been used in prior precedent. Clarifying, therefore, what standard applies to the merits of a due process claim to a claim-revival statute, the Court held “a claim-revival statute will satisfy the Due Process Clause of the State Constitution if it was enacted as a reasonable response in order to remedy an injustice” (Opn, at 32). As the Court explained, under that standard, a claim-revival statute will be constitutional if there was “an identifiable injustice that moved the legislature to act” and “the legislature’s revival of the plaintiff’s claims for a limited period of time was reasonable in light of that injustice” (Opn, at 30-31). A higher standard of review would be too much, the Court held.

A more heightened standard would be too strict. In the context of a claim-revival statute, there is no principled way for a court to test whether a particular injustice is “serious” or whether a particular class of plaintiffs is blameless; such moral determinations are left to the elected branches of government. While we have traditionally expressed an aversion to retroactive legislation, of which claim-revival statutes are one species, we have noted that the modern cases reflect a less rigid view of the Legislature’s right to pass such legislation. Nonetheless, there must first be a judicial determination that the revival statute was a reasonable measure to address an injustice

(Opn, at 31-32 [cleaned up]).

Judges Rivera and Wilson wrote separately to expand on their views of the issues. Judge Rivera explained her view of the second certified question that “unless it impinges on a separate vested property right and not merely the hope of avoiding litigation, a claim-revival statute does not violate due process, because defendant has no fundamental right to a statute of limitations in perpetuity” (Rivera, J., concurring, at 9). And Judge Wilson argued, on the first certified question, that the question was not one of capacity at all. Plainly, he thought, the BPCA has capacity to bring a suit.  What it doesn’t have, Judge Wilson explained, is prudential standing that would make the question justiciable. Judge Wilson would have gone farther too, to offer for the Second Circuit a view of the case on the merits: BPCA loses.

With those questions answered, the case will proceed back to the Second Circuit for a decision on whether BPCA has capacity to challenge Jimmy Nolan’s Law (after the Court of Appeals decision, there is likely zero chance that it does) and whether BPCA’s due process claims will succeed on their merits (even if BPCA had capacity, its claims would still likely fail under the Court’s newly clarified standard). So, in all likelihood, the plaintiffs’ personal injury claims will proceed in District Court with BPCA on the hook for damages.

The Court of Appeals’ opinion can be found here.

Court of Appeals Holds Reinsurance Agreements Must Be Interpreted Like Any Other Contract

Reinsurance is insurance for insurers. Big money insurers often seek to defray their risk by paying a reinsurer to cover some of their liability for big payouts. For example, if an insurer issues a $10 million business policy, a reinsurance policy might cover half of that. So if a $10 million claim is paid by the insurer, the reinsurer would reimburse the insurer for $5 million of the cost.

The question is, though, if the reinsurer’s liability is capped at $5 million, does that cap automatically include litigation defense costs as a matter of New York law? In Excess Insurance Co. Ltd. v Factory Mutual Insurance Co. (3 NY3d 577 [2004]), the Court of Appeals interpreted a facultative reinsurance policy (reinsurance of a single insurance policy) to hold that the parties had agreed to limit the reinsurer’s total liability, including defense costs, to the stated limit. The Excess decision was based on the terms of the specific reinsurance policy the Court interpreted, but it has been interpreted by other courts as a holding that under New York law, all reinsurance agreement liability limits include not only losses under the insurance policy, but also all defense costs.

In Global Reinsurance Corporation of America v Century Indemnity Co. (No. 124), which I previewed here, the Court of Appeals was asked to clarify the scope of its decision in Excess. In Global, Global issued reinsurance certificates to Century to reinsure insurance policies that Century had issued to Caterpillar Tractor Company.  After Caterpillar was sued in numerous cases relating to alleged exposure to asbestos in Caterpillar’s products, Century was obligated to pay for Caterpillar’s defense expenses in addition to paying up to the liability limits of its policies. Global and Century then began to fight over the extent of Global’s liability under the reinsurance certificates.

The U.S. District Court for the Southern District of New York adopted Global’s interpretation of the reinsurance certificates that its total liability cap included defense costs. See Glob. Reins. Corp. ofAm. v. Century Indem. Co., No. 13 Civ. 06577, 2014 WL 4054260, at *4‐7 (S.D.N.Y. Aug. 15, 2014).

Noting that the Court of Appeals had not explicitly spoken on this issue, the Second Circuit certified the question to the Court of Appeals, asking whether the Court’s decision in Excess imposed a presumption or a rule of construction that would always include defense costs within a total reinsurance cap.

The Court of Appeals cleared up the confusion over its Excess decision, holding that reinsurance agreements should be interpreted like any other contract. Excess did not impose any presumption that defense costs are always included in a total reinsurance liability cap. That question will depend on the particular terms of the agreement. As the Court put it,

The foregoing principles do not permit a court to disregard the precise terminology that the parties used and simply assume, based on its own familiar notions of economic efficiency, that any clause bearing the generic marker of a “limitation on liability” or “reinsurance accepted” clause was intended to be cost-inclusive. Therefore, New York law does not impose either a rule, or a presumption, that a limitation on liability clause necessarily caps all obligations owed by a reinsurer, such as defense costs, without regard for the specific language employed therein.

That makes sense. A reinsurance policy is like any other contract. The parties can bargain for particular terms and their intentions should control. If there’s one lesson to come out of the Court’s decision in Global, it’s to make sure that your reinsurance policy is very clear about what is included in any total liability cap. If defense costs are capped too, then say that in plain language. Otherwise, you too could be spending boatloads of money litigating over whether a few words in the agreement mean that the reinsurer has unlimited liability for defense costs, even over and above the total liability cap. And that’s no fun at all (except for the attorneys).

The Court of Appeals’ opinion can be found here.

Expressions Hair Design Update: The Second Circuit Certifies Interpretation Question to the Court of Appeals

You’ve bought things with a credit card before, right? Me too. Have you ever thought that you might be charged a different price for what you’re buying because you’re not paying in cash? Me neither, and that seems to be what New York General Business Law § 518 tries to prevent.  It provides:

No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.

But what does section 518 actually prohibit a merchant from doing?  How far is its reach?  The Second Circuit previously suggested that section 518 appears to bar a retailer from posting a cash price and noting along side it that those paying with a credit card will be charged a certain amount more, the so-called “single-sticker-price scheme.”  Retailers seem to be able to offer discounts to people paying in cash, however.  No New York courts have addressed the reach of the provision, and so what exactly is prohibited remains an unsettled question.

The Second Circuit has now asked the Court of Appeals to resolve that question.  For those who haven’t been following the case closely, including its quick trip to the Supreme Court, here’s a brief recap.  In Expressions Hair Design v Schneiderman, five New York retailers challenged section 518 as a violation of their First Amendment rights by impermissibly regulating how they communicate their prices to customers.  The District Court found in the retailers’ favor, but the Second Circuit vacated the District Court judgment. The Second Circuit held that section 518 regulated conduct, not commercial speech, and thus did not violate the First Amendment.

The Supreme Court granted certiorari, however, and reversed. The Supreme Court held that section 518 does regulate commercial speech, and clearly bars the single-sticker-price scheme to which the retailers had limited their challenge. The The Court, therefore, remanded the case to the Second Circuit to address the question that it did not previously, whether Section 518’s regulation of commercial speech survived First Amendment scrutiny.  Although the Court’s consideration of the question was limited to the single-sticker pricing scheme set forth by the retailers, the Court noted that the Second Circuit was free to consider the constitutionality of other pricing schemes should it decide to do so.

On remand from the Supreme Court, the Second Circuit asked the parties for further briefing on the First Amendment issues and whether the unsettled statutory interpretation question should be certified to the Court of Appeals for a determination under New York law.  In response, the State argued that the Second Circuit should certify two questions concerning the interpretation of section 518 to the Court of Appeals because the statute’s constitutionality turns on the Court’s answer to those questions.  Particularly, the State asked the Second Circuit to certify these questions:

The retailers, on the other hand, argued that the Supreme Court’s opinion foreclosed the certification route by adopting the Second Circuit’s prior interpretation of section 518.  Regardless, the retailers argued, certification was inappropriate because the Court of Appeals could not construe section 518 as prohibiting any dual pricing scheme because such an interpretation “would directly conflict with a federal statute expressly protecting the right of merchants to provide discounts to cash-paying customers, see 15 U.S.C. § 1666f—and so would likely be preempted under the Constitution’s Supremacy Clause. The constitutional-avoidance doctrine thus has no application in a case like this one, where avoiding one set of constitutional problems necessarily presents the court with an entirely new set of constitutional problems.”  (Plaintiffs’ Brief, at 18).

After evaluating the parties’ arguments, the Second Circuit decided on the certification route, and certified this question:

Does a merchant comply with New York’s General Business Law § 518 so long as the merchant posts the total‐dollars‐and‐cents price charged to credit card users?

Because the Supreme Court remanded on “whether Section 518, as applied to the single‐price scheme, is either a valid regulation of commercial speech under Central Hudson or a permissible disclosure rule under Zauderer,” the Second Circuit decided that the Court of Appeals’ interpretation of the scope of the statute would help the Court choose which test applies.

More fundamentally, because the question whether to apply Central Hudson’s test or Zauderer’s turns in part on a functional analysis of Section 518, the First Amendment inquiry in this case properly begins by accounting for the way the statute operates in practice. Despite the general rationale it offered in Zauderer for the lesser standard of review it articulated in that case, the Supreme Court has never clearly specified a governing framework that determines when Zauderer’s less‐exacting standard should apply instead of Central Hudson’s intermediate scrutiny. However, the Supreme Court has suggested that, at a minimum, Zauderer supplies the governing standard when evaluating the constitutionality of a law (1) designed to address misleading commercial speech (or, presumably, its equivalent, the non‐disclosure of information material to the consumer), (2) which mandates only that the merchant make certain truthful statements, and (3) which does not prevent the merchant from conveying additional truthful information.

We see no obvious way to conduct the functional analysis this view of the Central Hudson/Zauderer distinction requires without first gaining greater clarity about the correct application of Section 518 under New York law. Here, of course, the State argues that Section 518 is designed to address the possibility that consumers will be misled if a merchant does not clearly disclose, at the outset, the price it charges to credit card users. As a result, the scope of Section 518’s prohibition is crucial to our analysis in this case. If Section 518 forces a merchant to disclose an item’s credit‐card price, without otherwise either barring the merchant from (a) implementing (and describing to customers) a pricing scheme that differentiates between payments by credit card and cash or (b) conveying to its customers other information the merchant finds relevant, then Zauderer might apply. However, if the statutory prohibition sweeps much more broadly, then Central Hudson might apply. At the very least, without some clarification of Section 518’s scope from the Court of Appeals, and in the absence of some other way to identify the actual scope of Section 518’s rule, it is not clear that we can even decide the basic question of which standard of review — Central Hudson or Zauderer — properly applies.

Here’s the thing, though. In certifying the interpretation question to the Court of Appeals, the Second Circuit makes a number of statements that seem to suggest, clearly to me at least, where the Court stands on the retailer’s First Amendment challenge.  For instance, when explaining how the Court of Appeals’ interpretation could affect the Zauderer test, the Second Circuit explains how section 518 could survive scrutiny under that test, and then, with a conspicuous caveat that it isn’t deciding the merits, basically rejects the retailers’ arguments on the merits. I wouldn’t be too encouraged if I was one of the retailers.

Another interesting point from the Second Circuit’s certification decision is that it explains that it is choosing between the Central Hudson and Zauderer tests without much, if any, guidance from the Supreme Court on when each applies. It is conceivable that this case could go to the Court of Appeals for resolution of the scope of section 518, come back to the Second Circuit for which test applies and whether section 518 withstands the retailers’ First Amendment challenges, and then head back to the Supreme Court for the second time. An appellate geek like me can only dream!

The Second Circuit’s certification opinion can be found here.

Court of Appeals Holds Standard for Punitive Damages Under NYCHRL is Willful or Wanton Negligence, Recklessness, or Conscious Disregard

The New York City Human Rights Law provides strong protections against discrimination in all of its forms.  To strengthen those protections, the NYCHRL makes punitive damages available to a prevailing plaintiff.  Its text, however, doesn’t provide the standard that the courts should apply when determining whether the plaintiff should be awarded punitives.  That’s a problem. Without a standard, the courts are left to interpret the statute and case law to come up with what the plaintiff must prove to that he or she is entitled to the extra award of damages to punish the discriminatory conduct.  And when discrimination cases are brought in federal court under both federal and state anti-discrimination laws, District Court judges tend to apply the federal standard to state law when state law is unclear.  That’s exactly what happened here.

In Chauca v Abraham (No. 113), which I previewed here, Veronica Chauca worked as a physical therapy aid before she went out on an approved maternity leave.  Her employer, however, never let her come back to work after her maternity leave had ended.  She was just told that her services were no longer necessary, and was unceremoniously fired.  If that sounds like blatant pregnancy discrimination, you’re right, it does.  And that’s exactly what a federal jury found, awarding Chauca $65,500 in damages for lost compensation and pain and suffering.

The U.S. District Court for the Eastern District of New York, however, declined to charge the jury on punitive damages.  The Court held instead that although the NYCHRL calls for liberal construction of its provisions, Chauca had not shown that her employer had intentionally discriminated with “malice” or “reckless indifference.”  The Court, thus, in effect applied the Title VII standard for punitive damages to the NYCHRL.

Chauca appealed the damages award to the Second Circuit, arguing that the District Court had improperly applied Title VII’s punitive damages standard to her NYCHRL claims.  The Second Circuit acknowledged that its prior decision in Farias v Instructional Systems, Inc. (259 F3d 91 [2001]) on the issue required the District Court to apply the Title VII standard, but noted that its decision has been called into question in the years after it was handed down. Particularly, the New York City Council has twice amended the NYCHRL to ensure that it it broadly construed, regardless of how similar state and federal statutes are interpreted. That, the Second Circuit reasoned, suggested that the Title VII standard for punitive damages might not be the right one.

Because, however, the New York courts have not yet addressed the question of what is the standard for punitive damage awards under the NYCHRL, the Second Circuit certified the question to the Court of Appeals.  At oral argument, the plaintiff’s counsel argued that because the NYCHRL provides no explicit standard for an award of punitive damages, the New York City Council must have intended that punitives be granted in every case where the plaintiff can establish that he or she was discriminated against.

Predictably rejecting the Plaintiffs’ rule of punitive damages in every case, the Court of Appeals held, to be awarded punitive damages under the NYCHRL, the plaintiff has to satisfy the New York common law rule for punitive damages under Home Ins. Co. v American Home Prods. Corp. (75 NY2d 196, 203-204 [1990]).  That is, the plaintiff must show that the discriminating defendant’s conduct “amount[s] to willful or wanton negligence, or recklessness, or . . . there is ‘a conscious disregard of the rights of others or conduct so reckless as to amount to such disregard'” (Opn, at 2, quoting Home Insurance Co., 75 NY2d at 203-204).

Because the text of the NYCHRL did not provide this standard, the Court relied instead on the generally accepted common law meaning of punitive damages as a legal term of art.  This interpretation was best, the Court held, because the City Council chose the term “punitive damages” knowing that it already had a well defined common law meaning that needed no further explanation.  Simple and straight forward.

The Court declined Plaintiff’s invitation to equate the standard for a compensatory damages award with a punitive damages one. As the Court put it,

Punitive damages differ conceptually from compensatory damages and are intended to address “gross misbehavior” or conduct that “willfully and wantonly causes hurt to another” (Thoreson v Penthouse Int’l, 80 NY2d 490, 497 [1992]). Indeed, this Court has noted that “[n]ot only do [punitive damages] differ in purpose and nature from compensatory damages, but they may only be awarded for exceptional misconduct which transgresses mere negligence” (Sharapata v Town of Islip, 56 NY2d 332, 335 [1982]). Punitive damages represent punishment for wrongful conduct that goes beyond mere negligence and are warranted only where aggravating factors demonstrate an additional level of wrongful conduct (see Home Ins. Co., 75 NY2d at 203-204). Accordingly, there must be some heightened standard for such an award.

The Court also, however, rejected the defendants’ assertions that the District Court properly applied the Title VII standard for punitive damages.  Title VII’s standard for a punitive damages award—requiring “intentional discrimination . . . with malice or with reckless indifference to the . . . protected rights of an aggrieved individual” (Koldstadt v American Dental Assn., 527 US 526, 529-530 [1999])—was too strict in light of the City Council’s recent amendments to the NYCHRL to ensure liberal construction of its anti-discrimination provisions to provide the utmost protection to discrimination victims. In contrast to the Title VII standard for punitive damages, the New York common law approach

requires neither a showing of malice or awareness of the violation of a protected right, representing the lowest threshold, and the least stringent form, for the state of mind required to impose punitive damages. By implementing a lower degree of culpability and eschewing the knowledge requirement, applying this standard adheres to the City Council’s liberal construction mandate while remaining consistent with the language of the statute.

Moreover, NYCHRL violations, by their very nature, inflict serious harm “to both the persons directly involved and the social fabric of the city as a whole” (Rep of Comm on Gen Welfare, Local Law No. 85 [2005], 2005 NY City Legis Ann, at 537). The standard for punitive damages articulated in Home Insurance, while requiring an appropriate showing of heightened culpability for punitive damages consistent with the language of the provision at issue, is nevertheless properly reflective of the serious and destructive nature of the underlying discriminatory conduct and the goal of deterring “future reprehensible conduct” (Ross, 8 NY3d at 489). Furthermore, subjecting NYCHRL defendants to punitive damages under this standard encourages nondiscriminatory behavior and the development and application of appropriate employment criteria. In sum, this approach is the most liberal construction of the statute that is “reasonably possible” and furthers the purpose of the NYCHRL.

Although I won’t spend much time on Judge Rowan Wilson’s dissent, in which he adopts Plaintiff’s rule of an automatic punitive damages award upon a finding of liability because, he argues, it is the most liberal construction of the statute, I have to say that I am continually impressed by his writings.  I finished the majority opinion sure that the correct decision had been reached, but Judge Wilson’s dissent, with its pithy takedowns of the majority’s reasoning, left me with more doubt about the holding than I expected.  And although I’m not ultimately convinced, he certainly makes a compelling case for finding the other way.  It’s worth a read.

The Court of Appeals’ opinion can be found here.

Court of Appeals November Session: Arguments of Interest for November 15, 2017

The Court of Appeals’ November Session continues at Court of Appeals Hall on Wednesday, November 15, 2017 with four cases on the argument docket (the Court’s case summaries can be found here).

First up is a certified question from the Second Circuit Court of Appeals involving reinsurance agreements.  Particularly, the Court of Appeals will hear arguments on whether a per occurrence liability cap in a reinsurance contract limits the total reinsurance available under the contract to the amount of the cap regardless of whether the underlying policy is understood to cover expenses such as, for instance, defense costs. Next, the Court will hear arguments in a workers’ compensation case, asking whether the injured worker, who sustained a work-related injury and obtained a schedule loss of use award, was entitled to ongoing payments for litigation expenses incurred in an action against a third-party tortfeasor.

Finally, the Court will hear arguments in two cases that present the same issue: in a medical malpractice action, when does the statute of limitations begin to run when the theory is that the malpractice is “wrongful birth.” In those cases, the plaintiffs allege that a doctor who treated them for infertility negligently failed to test the egg donors for a chromosomal abnormality before birth, and both children were eventually born with the abnormality.  Does the claim for “wrongful birth” accrue when the doctor failed to do the test or when the children were born?

No. 124      Global Reinsurance Corporation of America v Century Indemnity Co.

In Global Reinsurance, Global issued reinsurance certificates to Century to reinsure insurance policies that Century had issued to Caterpillar Tractor Company.  After Caterpillar was sued in numerous cases relating to alleged exposure to asbestos in Caterpillar’s products, Century was obligated to pay for Caterpillar’s defense expenses in addition to paying up to the liability limits of its policies.  According to Global, Century has paid $60 million to Caterpillar and has agreed to pay $30.5 million more.  Of that amount, Global alleges that 10% is the actual liability loss and 90% is defense costs.

In this dispute, the parties each interpret the reinsurance certificate differently.  Global claims that its liability is capped by the total amount in the “Reinsurance Accepted” section of the certificate, which was intended to include both liability and expenses.  Century counters that the reinsurance cap applies only to the “loss” (e.g., settlement amount, judgment award), and that Global is liable to pay all expenses that exceed that amount.

The U.S. District Court for the Southern District of New York adopted Global’s interpretation, holding that the certificates unambiguously limited Global’s liability for both losses and expenses. See Glob. Reins. Corp. of Am. v. Century Indem. Co., No. 13 Civ. 06577, 2014 WL 4054260, at *4‐7 (S.D.N.Y. Aug. 15, 2014).

Noting that the Court of Appeals had not explicitly spoken on this issue, whether a liability cap in a reinsurance policy limits liability for both losses and expenses, the Second Circuit certified the question to the Court of Appeals.  Particularly, the Second Circuit certified this question:

Does the decision of the New York Court of Appeals in Excess Insurance Co.v. Factory Mutual Insurance Co., 3 N.Y.3d 577 (2004), impose either a rule of construction, or a strong presumption, that a per occurrence liability cap in a reinsurance contract limits the total reinsurance available under the contract to the amount of the cap regardless of whether the underlying policy is understood to cover expenses such as, for instance, defense costs?

The Second Circuit’s opinion can be found here.

Court of Appeals Holds Plaintiffs Can’t Base Discrimination Claim Under the NYC Human Rights Law on Untreated Alcoholism

Under Title VII and the New York State Human Rights Law, individuals are protected from discrimination on the basis of a perceived disability, even if they don’t have one. The New York City Human Rights Law is generally interpreted to be even more protective than Title VII and the State Human Rights Law. In fact, the New York City Council specifically wrote interpretation guidelines into the City Human Rights Law to make sure that the protections offered under the local code don’t fall below those offered under State and federal law.

Not so for untreated alcoholism, however, the Court of Appeals held in Makinen v City of New York (No. 104). In Makinen, which I previewed here, two New York City police officers sued the City and the Police Commissioner alleging that they were discriminated against because they were perceived to be untreated alcoholics, a form of disability discrimination.  The problem is, they weren’t alcoholics at all, and the express terms of the City Human Rights Law only considers recovered or recovering alcoholics to be disabled. Particularly, the City Human Rights Law provides:

Construing the plain language of the statute, the Court held that those words were unmistakable:

there is no ambiguity about the plain language of the NYCHRL, which is only open to one reasonable interpretation: the disability of alcoholism “shall only apply to a person who (1) is recovering or has recovered and (2) currently is free of such abuse” (Makinen, 857 F3d at 496). Indeed, by its plain language, the NYCHRL does not regulate employer actions motivated by concern with respect to the abuse of alcohol. Rather, the NYCHRL covers circumstances in which employers unfairly typecast alcoholics who have sought treatment and who are not presently abusing alcohol, so as to ensure that such persons are afforded a fair opportunity at recovery. Said differently, the NYCHRL provides that, with respect to alcoholism, a person is considered to be disabled (so as to trigger the protections of that law) only when he or she “is recovering or has recovered” and “currently is free of such abuse”

So, those perceived as alcoholics even though they aren’t are out of luck under the City Human Rights Law, the Court held. That conclusion holds regardless of the City Council’s interpretation guidelines. The Court reasoned that the statute’s language is so clear that it doesn’t require construction. Applying the City’s interpretation devices to change the plain meaning of the statute is rewriting it, not interpreting it, and the Court declined to do so.

Instead, the City Council is free to amend the statute if it disagrees, the Court held.

Judge Garcia, joined by Judge Stein, dissented, arguing that the majority ignored the City Council’s clear intention to provide more protection under the City Human Rights Law and interpreted the statute for the first time as providing less protection than Title VII and the State Human Rights Law. The majority’s “narrow” reading not only ignores legislative intent, it will lead to unintended results.

the majority’s interpretation of the Human Rights Law is not limited to those sympathetic cases in which an employer seeks to explore a suspected case of alcoholism for safety or treatment purposes. Rather, under the majority’s reading, an employer may lawfully punish an employee — by denying benefits, refusing a promotion, or terminating them — based solely on a misguided assumption about that employee’s conduct. An employer could, for instance, fire an employee with bloodshot eyes based on an incorrect assumption that the employee was abusing drugs when, in fact, the employee suffered from allergies. Such a construction is inconsistent with the purpose of the Human Rights Law and the City Council’s stated goal of provided maximum protection for all civil rights plaintiffs.

. . .

To be sure, an employer seeking to address a case of perceived untreated alcoholism may be motivated by good-faith concerns regarding the employee’s health and safety. But the majority’s reading of the statute permits both well- and ill-intentioned behavior, and does little to encourage accuracy in these crucial determinations. Nor does it ensure that “alcoholics who have sought treatment . . . are afforded a fair opportunity at recovery” (majority op at 7). Instead, the majority’s decision shields an employer who inaccurately diagnoses a case of alcoholism, and then discriminates against an employee on the basis of that misdiagnosis. Such an interpretation distorts the provision’s clear purpose and undermine’s the City Council’s stated goals.

The Court of Appeals’ opinion can be found here.

Court of Appeals October Session: Arguments of Interest for October 17, 2017

The Court of Appeals begins its second week of arguments for the October session on Tuesday, October 17th with three cases on its calendar (the Court’s case summaries can be found here).

First up is a criminal case asking whether a criminal defendant should have been entitled to a cross-racial identification jury charge at his trial for robbery because the two victims of the crimes were white and he is black. Next, the Court will hear arguments on an important family law case, which asks whether a child who has been removed from a parent’s care based upon an allegation of neglect must be returned immediately to the parent once Family Court dismisses the neglect petition as unsubstantiated, or whether Family Court retains jurisdiction to hold a permanency hearing to determine with whom the child should be placed even after dismissal of the neglect petition. Finally, the Court will take up two certified questions from the Second Circuit in a revived World Trade Center cleanup litigation concerning the capacity of a public benefit corporation to challenge the constitutionality of a state law reviving otherwise time-barred personal injury claims.

No. 119     In re: World Trade Center Lower Manhattan Disaster Site Litigation (Faltynowicz et al v Battery Park City Authority and two others)

Matter of World Trade Center Lower Manhattan Disaster Site Litigation involves the personal injury claims brought against the Battery Park City Authority, a New York public benefit corporation, arising out of the cleanup work done by responders after the September 11th terrorist attacks. The plaintiffs in the World Trade Center case are eight individuals who worked at the World Trade Center site cleaning up toxic dust in buildings on land owned by the BCPA. They allege that BCPA is liable for negligence and violations of NY Labor Law §§ 200 and 241(6) for failing to provide a safe workplace.

The plaintiffs’ claims were dismissed on July 29, 2009, however, for failure to timely serve a notice of claim pursuant to the Public Authorities Law. Afterwards, the New York Legislature enacted “Jimmy Nolan’s Law,” which revived the time-barred claims against the BPCA and provided the plaintiffs with an additional year to serve the notices of claim. The eight plaintiffs then took advantage of the new law and sued BPCA again. BPCA moved for summary judgment dismissing the claims and challenging the constitutionality of Jimmy Nolan’s Law on due process grounds. The State then intervened in defense of the statute and argued that BPCA, as a public benefit corporation, lacks capacity to challenge the constitutionality of the state statute.

New York generally follows the traditional rule that municipalities and other arms of the State lack capacity to challenge the acts of the State as their creator, including state legislation. In City of New York v State of New York (86 NY2d 286 [1995]), the Court of Appeals explicitly recognized four exceptions, under New York case law, to the general rule that a municipality lacks capacity to seek to invalidate state legislation or challenge state action on state constitutional grounds (see 86 NY2d at 291-292). The Court of Appeals held:

The only exceptions to the general rule barring local governmental challenges to State legislation which have been identified in the case law are: (1) an express statutory authorization to bring such a suit; (2) where the State legislation adversely affects a municipality’s proprietary interest in a specific fund of moneys; (3) where the State statute impinges upon “Home Rule” powers of a municipality constitutionally guaranteed under article IX of the State Constitution; and (4) where “the municipal challengers assert that if they are obliged to comply with the State statute they will by that very compliance be forced to violate a constitutional proscription”

(id. at 291-292 [citations omitted], quoting Matter of Jeter v Ellenville Cent. School Dist., 41 NY2d 283, 287 [1977]).

Public benefit corporations, however, are not necessarily viewed as arms of the State in every instance. Instead, in Clark-Fitzpatrick, Inc. v Long Is. R.R. Co. (70 NY2d 382, 387 [1987]), the Court of Appeals held that “a particularized inquiry is necessary to determine whether—for the specific purpose at issue—the public benefit corporation should be treated like the State.”

In Clark-Fitzpatrick, for example, the Court of Appeals assessed whether the public benefit corporation should be immune from liability for punitive damages, and concluded that because the LIRR served an essential public function in providing commuter transportation and much of its funding came from the State, it should be treated like the State and be immune from punitive damages.

In contrast, the Court of Appeals has held that the New York State Thruway Authority should not be treated like the State for purposes of public bidding because “the statute creating the Thruway Authority is replete with provisions which emphasize its separate and independent existence and serve to distinguish it sharply from the type of State board or department which would be subject to the requirements of the State Finance Law with respect to bidding” (Matter of Plumbing, Heating, Piping & A.C. Contrs. Assn. v New York State Thruway Auth., 5 NY2d 420, 423-424 [1959]).

After intervening, the State argued that the Clark-Fitzpatrick particularized inquiry test does not apply when a public benefit corporation attempts to raise a constitutional challenge to a state statute. The State’s position is that public benefit corporations should be treated like municipalities that only have capacity to sue the State if they fall within one of the four City of New York exceptions.

The District Court (SDNY) held that the BPCA is an entity independent of the State because it “was created to be independent of the State in performing primarily private functions, funded primarily by private means,” through issuance of bonds (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 66 F Supp 3d 466, 472 [SDNY 2014]). The District Court also noted that

the Legislature has acted to expose BPCA, and its general fund, to a liability that, without the legislation, would not have existed. Plaintiffs’ claims had been extinguished by limitations; the purported revival of those claims by legislative act burdens BPCA’s general fund and its ability to repay bond obligations, for which it is solely and independently responsible

(id. at 473). The District Court then held that Jimmy Nolan’s Law violated the BPCA’s due process rights under the New York Constitution (see id. at 476).

On appeal, the Second Circuit did not find New York law on whether a public benefit corporation has capacity to challenge a state statute on constitutional grounds to be so clear. Instead, the Second Circuit held, it is “unclear whether New York courts have applied the [Clark-Fitzpatrick] particularized-inquiry test in the present context—that is, to determine whether a public benefit corporation should be treated like the State for the purpose of having the capacity to raise a constitutional challenge to a State statute” (Matter of World Trade Ctr. Lower Manhattan Disaster Site Litig., 846 F3d 58, 64 [2d Cir 2017]).

So, the Second Circuit certified two questions to the Court of Appeals:

(1) Before New York State’s capacity-to-sue doctrine may be applied to determine whether a State-created public benefit corporation has the capacity to challenge a State statute, must it first be determined whether the public benefit corporation “should be treated like the State,” see Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., [70 N.Y.2d 382, 521 N.Y.S.2d 653] 516 N.E.2d 190, 192 ([ ]1987), based on a “particularized inquiry into the nature of the instrumentality and the statute claimed to be applicable to it,” see John Grace & Co. v. State Univ. Constr. Fund, [44 N.Y.2d 84, 404 N.Y.S.2d 316] 375 N.E.2d 377, 379 ([ ]1978), and if so, what considerations are relevant to that inquiry?; and

(2) Does the “serious injustice” standard articulated in Gallewski v. H. Hentz & Co., [301 N.Y. 164] 93 N.E.2d 620 ([ ]1950), or the less stringent “reasonableness” standard articulated in Robinson v. Robins Dry Dock & Repair Co., [238 N.Y. 271] 144 N.E. 579 ([ ]1924), govern the merits of a due process challenge under the New York State Constitution to a claim-revival statute?

As the Second Circuit noted,

If the particularized-inquiry test applies, and if BPCA is judged to be sufficiently independent from the State, then the traditional capacity-to-sue rule will not attach and BPCA will be free to raise its constitutional challenge. However, if the particularized-inquiry test does not apply, or if it applies but BPCA is deemed to be indistinguishable from the State for the purpose of challenging a State statute, then BPCA will be subject to the traditional capacity-to-sue rule and—unless it can prove that it falls within one of the rule’s four limited exceptions—BPCA’s constitutional challenge will be dismissed.

(World Trade Ctr., 846 F3d at 70).

On appeal, the State argues that public benefit corporations are “subject to the Legislature’s plenary control,” which gives them no right to challenge the Legislature’s enactments. Particularly, the State argues,

because public corporations are purely creatures of state law, the Legislature has plenary authority over their powers and responsibilities. And that authority precludes any attempt by such entities to thwart the Legislature’s decision to withhold, grant or withdraw [their] powers and privileges, as it sees fit

(State Brf, at 27 [internal quotation marks omitted]). The State thus equates public benefit corporations to municipalities, a government-created entity that has no rights vis a vis the State. Public benefit corporations’ sole purpose, the State argues, “is to serve the Legislature’s ends, not to thwart the Legislature’s ability to accomplish those ends. Dictating the terms on which such public entities may be sued—and the immunities they may raise in defense—is an important means by which the Legislature ensures that the entities it creates will serve the public interest. The ability to modify those terms over time is no less important a tool of government to ensure that the public interest continues to be served” (State Brf, at 31-32).

The State also argues that the Clark-Fitzpatrick particularized inquiry test does not apply to claims against the State. Instead, “[t]hat test determines only the relationship between third parties and public benefit corporations—specifically, whether such corporations should be treated as the State in matters affecting third parties” (State Brf, at 32). Without application of the particularized inquiry test, the State argues, public benefit corporations can only raise constitutional challenges to state legislation if they fall within one of the four City of New York capacity exceptions (State Brf, at 34 n 5).

The Court of Appeals will now hear arguments and decide. How the Court of Appeals decides the capacity issue could have a tremendous impact on how public benefit corporations can protect their proprietary rights that exist independent of State control. If the Court sides with the State, public benefit corporations will be equated to municipal corporations and will lack capacity to raise any constitutional challenge to state statutes affecting their proprietary rights, notwithstanding that they have independent governance and are created to be independent of the State. Application of the Clark-Fitzpatrick particularized inquiry test, in contrast, will allow the courts to resolve capacity on a case-by-case basis because not all public benefit corporations have the same levels of independence. Adoption of the latter rule could be of great benefit to public benefit corporations in protecting their rights.

Court of Appeals October Session: Arguments of Interest for October 10, 2017

The Court of Appeals’ October session begins on Tuesday, October 10, 2017, with three cases on the argument calendar (the Court’s case summaries can be found here). The Court will face the following issues: (1) whether a Cayman precondition to continuing a derivative suit must be satisfied before the derivative claims may be pursued in New York courts; (2) whether a criminal defendant has an absolute right to be present at his resentencing where a procedural defect in the original sentence is cured and the same sentence is reimposed; (3) what is the standard for finding a defendant liable for punitive damages under the New York City Human Rights Law.

No. 113 Chauca v Abraham

In this case alleging pregnancy discrimination under the New York City Human Rights Law, Chauca prevailed at trial and was awarded $65,500 in damages for lost compensation and pain and suffering.  The U.S. District Court for the Eastern District of New York, however, declined to charge the jury on punitive damages.  The Court held instead that although the NYCHRL calls for liberal construction of its provisions, Chauca had not shown that her employer had intentionally discriminated with “malice” or “reckless indifference.”  The Court, thus, in effect applied the Title VII standard for punitive damages to the NYCHRL.

Chauca appealed the damages award to the Second Circuit, arguing that the District Court had improperly applied Title VII’s punitive damages standard to her NYCHRL claims.  The Second Circuit acknowledged that its prior decision in Farias v Instructional Systems, Inc. (259 F3d 91 [2001]) on the issue required the District Court to apply the Title VII standard, but noted that its decision has been called into question in the years after it was handed down. Particularly, the New York City Council has twice amended the NYCHRL to ensure that it it broadly construed, regardless of how similar state and federal statutes are interpreted. That, the Second Circuit reasoned, suggested that the Title VII standard for punitive damages might not be the right one.

Because, however, the New York courts have not yet addressed the question of what is the standard for punitive damage awards under the NYCHRL, the Second Circuit certified the question to the Court of Appeals. The Court of Appeals will now hear arguments on what standard should apply.

The Second Circuit’s opinion can be found here and the Court of Appeals’ decision accepting the certified question here.

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